Three ways BlackBerry went wrong

Commentary: Complacency, leadership and a bad bet sank the firm

SAN FRANCISCO (MarketWatch) — For BlackBerry Ltd., the fall from grace has been epic.

The Canadian-based smartphone pioneer appears to have finally found a savior, and, if all the details are worked out, the company will go private in a deal led by its largest shareholder, Fairfax Financial, valued at $4.7 billion, or $9 a share, in November.

Though a nice upside for a stock that got pummeled by last week’s whopper of an earnings warning, it’s a huge comedown from BlackBerry’s
BBRY, -2.34%
former status as a company that was revered for its secure network and high-quality handsets. The deal price is less than one-quarter of the market value that the company commanded just three years ago.

BlackBerry agrees to $4.7B deal

(3:19)

Beleaguered smartphone maker BlackBerry struck a deal to sell itself to a group led by Fairfax Financial for about $4.7 billion in cash.

BlackBerry may not be dead yet, but its drastic reversal of fortune is probably going to make for some compelling business-school case studies. The company will probably join the ranks of fallen tech stars like Kodak, Digital Equipment Corp. and others who lost their leadership to nimbler rivals, whether due to hubris, inability to change, size or all of the above.

Here are a few guesses as to what the case studies and their experts will say about the fall of BlackBerry:

1.)The company was complacent. And its overcomplacency meant it failed to see the threat posed by Apple Inc.’s
AAPL, -0.87%
iPhone and Google Inc.’s
GOOG, -1.10%
Android platform. If you have by now forgotten former co-CEO Jim Balsillie’s rambling and even incoherent comments on analyst conference calls, it is worth revisiting some of them.

For example, when asked in June 2008, a year after the iPhone was launched, whether his company was worried about overlap with the customer base for the iPhone, Balsillie initially responded that the question had no relevance to the company’s way of thinking.

He went on to add: “Because once you decide to become a BlackBerry user, you kind of stay there for life, and let’s not be too penny-wise, pound-foolish when we do get very good absolute margin.”

2.) It kept its co-CEO structure in place for far too long. When Balsillie and co-CEO Mike Lazaridis — significantly, the largest shareholders of what was then Research In Motion — finally decided to step down in January 2012, they were replaced with another insider, Chief Operating Officer Thorsten Heins, who perpetuated his predecessors’ strategy, continuing development of a whole new operating system, BlackBerry 10. Needham & Co. analyst Charlie Wolf said at the time that the changes “appear[ed] more cosmetic than substantive.”

This is one case where it seemed obvious to outsiders that the company needed major change, in the manner of IBM Corp.’s
IBM, +0.64%
hiring of Lou Gerstner as its CEO, the first CEO to come from outside the Big Blue ranks. That move helped lead to big changes in the IBM culture and ridded it of much of the complacency and arrogance that had taken root in its years of industry dominance.

BlackBerry’s steadfast adherence to developing its own next-generation operating system, BlackBerry 10, in the face of increased competition from cheaper Android-based devices, looks increasingly like a case of reaching a crossroads and choosing the wrong path.

BlackBerry’s biggest investor, though, seems optimistic about its future. Prem Watsa, chairman and CEO of Fairfax, which is spearheading the buyout offer and can be characterized as a sort of Canadian version of Warren Buffett’s Berkshire Hathaway, said that going private will “open an exciting new private chapter for BlackBerry, its customers, carriers and employees.” Watsa said BlackBerry can deliver immediate value to shareholders as it executes its longer-term strategy as a private company.

Maybe. But as the company looks to go private and focus on a few devices for corporate users and so-called prosumers, the outcome is anything but clear. The sure bet is that MBA students — alongside the Kodaks and Digital Equipments and, yes, RIMs of future generations — will be studying intently and trying to learn well where, and why, the once-mighty BlackBerry went wrong.

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